Other BriefingsInvesting in Karnataka, India: State Profile, Infrastructure, and Enabling Policies
We discuss why foreign investors favor Karnataka as a location for their IT and manufacturing businesses. We highlight Karnataka’s streamlined business environment, manufacturing clusters, investment promotion subsidies, a dynamic talent pool, and its rich natural resource profile.
Unpacking the state’s performance on investments
In March 2023, the Karnataka government approved 18 industrial projects totaling INR 750 billion (US$9.13 billion), marking a successful fiscal year for the state. Among these projects are Foxconn’s plans to expand their manufacturing presence in India, part of Apple’s strategy to diversify its supply chains outside China.
Karnataka has consistently attracted foreign manufacturers due to its advanced industrial ecosystem, quality infrastructure, and investment promotion subsidies for sunrise sectors under industrial policies. The state’s appeal is contributing to the overall attractiveness of southern India for foreign investments.
Proximity to the coastline, robust connectivity, warehousing infrastructure, special economic zones, and access to raw materials, skilled workforce, and downstream industries – all make Karnataka a highly favorable location for manufacturing investments.
Foxconn spotlight: Taiwan company’s investments in Karnataka in 2023
Foxconn, a prominent Taiwanese company, has demonstrated a strong investment preference for Karnataka, India.
The Karnataka government extended a 100-acre plot offer to Foxconn Industrial Internet (Fii), a subsidiary of Foxconn, on July 17, 2023, situated in the Japanese Industrial Township in Tumakuru district. Fii, specializing in electronic device production, cloud service equipment, and industrial robots, is set to invest INR 88 billion, generating 14,000 jobs. In addition to this, Foxconn is establishing an iPhone assembly unit in Devanahalli’s IT investment region (ITIR). The finalization of a 300-acre plot transfer signals the imminent commencement of construction for this advanced facility.
A Bloomberg report highlights Foxconn Technology Group’s plan to invest approximately INR 4.1 billion (US$500 million) in building two component factories in Karnataka. The chosen location suggests a focus on manufacturing Apple components, including those used in iPhones.
Formalizing their collaboration, the Karnataka government and Foxconn signed a Letter of Intent (LoI) on August 2 for two additional projects, with an estimated combined investment of INR 50 billion, expected to create employment for around 13,000 individuals.
These projects supplement Foxconn’s previously announced INR 140-billion iPhone assembly plant. The first proposed project involves mechanical iPhone enclosures, with Fii investing INR 30 billion, creating an estimated 12,000 jobs. Simultaneously, a semiconductor equipment project, with an investment of INR 20 billion in collaboration with Applied Materials, is expected to generate around 1,000 jobs.
Infrastructure, logistics, and talent base
Karnataka boasts excellent connectivity to major markets with two international airports and five regional airports, 47 national highways, and 145 state highways. The state has a robust rail network spanning 3,818 km. Moreover, with a coastline of 320 km, Karnataka features 9 minor ports and a major port in Mangaluru. Major ports at Chennai and Krishnapatnam are 300-400 km away, while the JNPT at Mumbai is 980km away.
The state is intersected by both the Bengaluru-Mumbai Economic Corridor and the Chennai-Bengaluru Industrial Corridor, further bolstering its transportation infrastructure.
As of May 2022, there were 21 operational SEZs, of which 11 are located in and around Bengaluru. Top SEZs in terms of employment are Manyata Embassy Business Park, Pritech Park, and the Information Technology Park Ltd. Other prominent SEZs are in Udupi, Hassan, Mangaluru, Shivamogga, Mysuru (L&T), and Dharwad and Dakshina Kannada (Infosys).
Additionally, Karnataka’s education system provides a steady supply of technical and engineering graduates, researchers, and scientists, which benefits manufacturing industries. As of 2020, there were 234 engineering colleges, 57 medical colleges, 44 universities, and 16 international schools in the state. Bengaluru accounts for a 24-25 percent of India’s digital talent as per a report by IT industry body Nasscom. This includes skills like artificial intelligence, machine learning, low code development, and cybersecurity. Job creation is a primary objective for the Karnataka government, and subsidies are also offered to enterprises to promote local hiring.
Business reforms and streamlined bureaucracy
The improved ease-of-doing-business environment, featuring affidavit-based clearance with strict timelines, has played a key role in Karnataka attracting investments. This has enabled approved projects to commence operations without any delay for downstream approvals.
Additionally, Karnataka provides special incentives for investments in electronics, semiconductors, and solar cells, amounting to 25-30 percent of the investment. The state’s efforts to establish product-specific industrial clusters, such as the FMCG cluster in Dharwad, toys cluster in Koppal, bulk drugs park in Yadgir, and electric vehicles cluster in Ramanagara, are also expected to drive growth.
Further, the urban agglomeration around capital Bangalore (now known as Bengaluru) is the fourth-largest technology hub in the world and largest technology base in Asia. Located in the southeastern part of Karnataka, Bengaluru Urban has over 315 large scale industries and 211 medium scale industries across sectors like information technology (IT), biotechnology, aerospace, and food processing.
The Spoke-Shore initiative by the government aims to expedite the development of global capability centers (GCCs) within the state and establish a substantial talent pool outside of Bengaluru. The objective is to generate one million indirect and direct employment opportunities by 2026, focusing on the Mysuru, Hubbali, and Mangaluru clusters.
Labor management
The Karnataka state administration has consistently sought to balance corporate interests with larger socioeconomic considerations. For instance, the Karnataka government recently introduced flexibility for manufacturing firms in terms of raised limits of work hours and allowing women to work night shifts. There are conditions attached but the labor reforms seek to bring the state at par with other competitor investment destinations in China, Vietnam, and Taiwan.
Some recent regulatory changes facilitate the following:
- Provision to avail ‘Fixed term employment’ to optimize labor capacity to cater to seasonality
- Recent amendments made to facilitate women’s work timings in night shifts, between 7 PM to 6 AM
- Overtime limit per quarter increased from 75 to 125 hours with the amendments to the Factories Act
- Exemption limit for Industrial Disputes Act increased from 100 to 300 workers
- Exemption limit for Contract Labor Act (seeking licenses) increased from 20 to 50 workers
Location and climate
Located in southern India, Karnataka shares borders with several states and the Lakshadweep Sea to the west. It is bordered by Goa to the northwest, Maharashtra to the north, Telangana to the northeast, Andhra Pradesh to the east, Tamil Nadu to the southeast, and Kerala to the southwest. Notably, it is the only southern state to share land borders with all four of its southern Indian sister states. Covering an area of 191,791 sq km (74,051 sq mi), Karnataka constitutes 5.83 percent of India’s total geographical area, making it the sixth-largest state in the country.
The climate of Karnataka is subtropical, with winter (January-February), summer (March-May), southwest monsoon (June-September), and post-monsoon (October-December) seasons.
Major foreign investors and MNCs in the state
Leading multinational companies investing in Karnataka include Boeing, HAL, Essilor, Foxconn, 3M, IBM, Microsoft, Texas Instruments, Dell, Bosch, Philips, Infosys, Intel, Goldman Sachs, GE, Wipro, Sun Pharmaceuticals, Pepsi, Reliance Industries Ltd., Schneider Electric, Tata Power Renewable Energy, to name a few.
Major Districts in Karnataka and Their Investment Viability |
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Bagalkote |
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Ballari |
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Bengaluru Rural |
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Bengaluru Urban |
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Belagavi |
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Bidar |
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Bijapur (Vijayapura) |
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Dakshina Kannada |
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Davangere |
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Dharwad |
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Gadag |
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Hassan |
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Haveri |
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Kalaburagi |
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Kodagu |
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Kolar |
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Koppal |
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Mandya |
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Mysuru |
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Raichur |
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Ramnagara |
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Shivamogga |
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Tumakuru |
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Udupi |
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Uttara Kannada |
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Yadgir |
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Investments announced in 2022-23
Some of the latest investments approved in the state for the financial year 2022-23:
- A third electronics manufacturing cluster (EMC) coming up in Hubli, Dharwad district – covering an area of 224.5 acres. The new greenfield EMC aims to catalyze investments of over INR 15 billion and generate over 18,000 jobs. Nine companies and start-ups have already committed investments of INR 3.4 billion and employment potential of 2,500 people.
- Mega textile parks planned in Raichur, Kalaburagi, Vijayapura, and Chikkamagaluru districts and 25 mini textile parks across Karnataka on a public-private-partnership (PPP) model.
- Over INR 2 trillion worth investment proposals in the green energy sector.
- The State Industries and Commerce Department cleared 78 investment proposals in March 2023 worth INR 52.98 billion (US$647.36 million) promising 13,917 jobs. Approvals were given to 17 important large and medium size industrial projects (that is, each project investment is above INR 500 million / approx. US$6.10 million), 59 new projects with investments of more than INR 150 million (US$1.83 million) and less than INR 500 million, and 2 projects of additional investment at about INR 2.03 billion (US$24.81 million).
Quick Glance: Karnataka’s Economic Profile and Industrial Ecosystem
- State GDP of US$260 billion in 2021-22 and per capita GDP of US$3800.
- Exports from Karnataka stood at almost US$115 billion in 2021-22 – 18.9% of India’s total exports.
- FDI inflows between October 2019 and December 2022 amounted to US$42.8 billion.
- Rise in investments from INR 165 billion in 2018-19 to INR 3.23 trillion in 2022-23.
- Karnataka was the top state attracting FDI during April 2021-March 2022 with INR 1.76 trillion worth investments. Total investments in Karnataka from FY 2018-19 to FY 2022-23 stood at INR 4.67 trillion.
- Key sectors in the state are aerospace and defense, food processing, auto, auto components and electric vehicles, biotech, pharmaceuticals, medical devices, electronic system design and manufacturing, clean energy, start-ups, steel, capital goods, toys, textiles and apparel, and tourism and wellness.
- A thriving technology industry.
- Karnataka’s digital economy is worth around US$130 billion.
- 700,000 fresh graduates annually and 400,000 engineering graduates annually.
- Home to over 400 Fortune 500 companies with their production, services, and global research and development centers located in the state.
- Bangalore, the state’s capital city, alone contributes to 60 percent of the total value of machine tools manufactured in India.
- Second highest producer of special purpose and heavy electrical machinery in India.
- The second largest chip design hub in the country.
- The largest software exporter in India.
- 2050 MW solar park set up at Pavagada, one of five biggest photovoltaic solar power parks in the world.
- Accounts for about 70% of coffee production and 33% of silk production in India. Leading producer of cashew nut, millets, marine products, rose onion, gherkin, green chilli, tamarind, sunflower and Byadgi Chilli.
- Generous investment promotion subsidies and higher incentives for tier-2 and tier-3 cities to expand investments beyond the capital.
This article was originally published April 13, 2023. It was last updated November 28, 2023.
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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.
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